The effects of federal tax policy changes on Nevada’s high-income households

The Private Bank by Nevada State Bank releases research on the effects of federal tax policy changes on Nevada’s high-income households

The Private Bank by Nevada State Bank released the fifth of its High Net Worth briefings today. The research prepared by local market research firm Applied Analysis estimated that recent changes in federal tax policy could cost Nevada’s high net-worth households as much as $1.8 billion annually. Changes analyzed included those sourced to higher marginal and capital gains tax rates, modifications to the alternative minimum tax, the reintroduction of deduction limitations for wealthy families (Pease limitation), new Medicare taxes and a permanent modification to the estate and gift tax.

“The bank’s clients are clearly concerned about the impacts of the recent federal tax increases. However, the x-factor in determining the potential impact of these changes remains how wealthy individuals and families will alter their investment strategies in response to the changing laws,” said Russell Price, executive vice president of The Private Bank by Nevada State Bank. “Nevada’s higher income households are actively revising these strategies with the assistance of their accountants, their lawyers and their wealth managers to ensure they are minimizing exposure while complying with the new rules.”

Additional findings from the briefing include:

  • Using the latest available 2010 tax return data to estimate the impacts of changing income tax rates, high net-worth households are estimated to bear an additional federal liability of $1.2 billion as a result of the increase in the highest marginal income tax rate from 35.0 percent to 39.6 percent.
  • Medicare taxes will add an estimated 0.9 percent to the marginal income tax rate for high net-worth individuals. The impact of the new Medicare income tax on high-income Nevadans is estimated at approximately $91.1 million annually.
  • Increasing the capital gains rates from 15 to 20 percent is expected to result in an additional $668.0 million from Nevada’s high-income households.
  • Reinstatement of the Pease limitation, which caps itemized deductions for high net-worth filers, is projected to add a three percent tax on adjusted gross income above $177,550. In 2010, there were 5,713 high-income returns that itemized deductions in Nevada, nearly 93 percent of all high income returns. Again, using 2010 tax return figures and calculations as a basis for future estimates, the expected impact of Pease limitations for all high-income Nevadans is estimated to be approximately $355.4 million annually.

“We are already seeing the impact of the federal tax increases. During the first 45 days of 2013, lower levels of spending are being reported by local retailers as well as some hotel casinos as workers at all levels feel the pinch of reduced take-home pay,” noted Applied Analysis’ Jeremy Aquero, the lead analyst on the research effort. “Federal tax policy changes clearly targeted higher net-worth households. We will be keeping a very close eye on how these changes impact investment and purchase decisions among this important population segment.”

The Private Bank publishes the “High Net Worth Report” monthly. Briefings are available on Nevada State Bank’s website at www.nsbank.com/HNWreport or by contacting The Private Bank directly at 702.855.4812.

About The Private Bank by Nevada State Bank

The Private Bank by Nevada State Bank provides a full range of personalized financial servicesfor high net worth and high-income clients, including deposit and lending services and wealth management planning. The Private Bank by Nevada State Bank is an unincorporated division of Nevada State Bank that provides specialized banking services to significant net-worth clients. Nevada State Bank is a full-service retail bank that has been chartered by the state of Nevada and is insured by the FDIC.

About Nevada State Bank

Nevada State Bank, with assets of more than $4.0 billion, is the largest state-chartered bank in Nevada. A full-service bank with 50 branches statewide, Nevada State Bank offers a complete range of consumerprivate and business banking services. It is a subsidiary of Salt Lake City-based Zions Bancorporation (Nasdaq: ZION), one of the nation’s premier financial services companies. With affiliates in 10 Western and Southwestern states, 139-year-old Zions Bancorporation has assets of $55.5 billion. For more information on Nevada State Bank, call 702.383.0009 or access www.nsbank.com.